What is Outsourcing and How to Do It?

In order to keep expenses down, many businesses have been turning to outsourcing. Outsourcing allows you to hire third-party workers for a particular task in order to save money on a full-time salary. With the economy turning more towards remote work, outsourcing has become very important to many businesses and should be something all companies consider when needed.

This article will answer what is outsourcing and why it is a valuable tool. We will also discuss the pros and cons of outsourcing to help you understand if it is right for your company and how to implement it.

What is Outsourcing?

Outsourcing is a business practice in which a company hires a third party to perform tasks, handle certain operations, or provide services. When talking about outsourcing, there are usually two parties involved- the company that is hiring the third party and the company or individual being hired. The company hiring the third party will pay a fee for them to do the task, while the third party will provide their own workers and equipment/technology needed for the task.

Common services provided in outsourcing are:

IT services

Customer service

Accounting

Bookkeeping and payroll

Human resources

Though there are a lot of other examples, the above represents the most common outsourced jobs.

Why Companies Outsource Certain Jobs

One of the biggest reasons businesses outsource certain jobs or tasks is that it can help lower costs. By outsourcing a worker, you only pay them for the individual task, which means you can save on the rest of the salary. That said, not having as many people on permanent payroll can significantly cut your costs, especially if you factor in benefits programs.

Full-time employees in Canada are entitled to certain things like employment insurance and paid vacation. If you do not need an employee to work full-time hours or only need them to work for part of the year, it can be advantageous to outsource the work they do.

For example, you may only need an accountant to help with bookkeeping and taxes once a year. It would be a waste of money to hire an accountant for the whole year.

Another reason why businesses choose to outsource certain types of employees is that it can lead to more innovation. When working with different employees, your team could benefit from that differing perspective. Having a consultant come in for a particular project might help the project become more innovative and efficient.

It can go back to that old saying- two heads are better than one. Hiring a third party can be a great way to bring a new perspective and finish the task more quickly.

Outsourcing can also help companies stick to what they are good at. In other words, if your company’s main job is to sell a particular product, you may not want to spend precious resources on tasks that could take you away from that.

Many architecture firms, for example, hire outside help for engineering tasks within the project. By doing this, they can spend all of their time and effort on creating beautiful buildings without having to worry about engineering tasks that are needed during planning and construction.

Cons of Outsourcing

Now that we have discussed why companies choose outsourcing, let’s take a look at some of the cons.

Not everything about outsourcing is going to be easy, and it should not be seen as an easy fix. One of the most common mistakes companies make when outsourcing is that they rush into contracts thinking it will save them money. Though outsourcing does save you money, you should ensure you have done your research before you enter into a contract with anyone.

Here are some of the cons you should be aware of when deciding to outsource some tasks of your business:

Hidden Costs. When dealing with third-party workers, you must ensure that their services do not come with any hidden costs such as materials. So, when looking over a contract, make sure you know exactly what it is that you are paying for so that you do not have budget issues.

Loss of Control. When hiring other companies or contract workers, you have to give up some control of the work and possibly the product’s quality.

Security Risks. When going into business with someone or another company, you will share information about your company and its operations. If you don’t use caution in how you share information and what you share, it can cause security breaches or confidential information leaks.

Sharing Financial Burden. When working with another company on a project, you are tied to them and their work financially. If they do not do the work well or miss deadlines, this can affect the entire project and might mean you need more money to fix mistakes.

Lost in Translation. This can be a literal “lost in translation” or a figurative one. For example, if you use outside workers from a different country, you might have translation issues when communicating specifications for the work that needs to be done. Also, if communication is unclear, the outsourced work could be done wrong before you are able to catch it. Either way, it spells trouble for your company.

Regardless, when done correctly, outsourcing can become a great asset to your business as it can save you money. In the next section, we will give you simple steps to start outsourcing for your business.

5 Steps to Outsourcing

Once you’ve decided to outsource some tasks in your company, follow these five steps to ensure success.

Identify your goals. Before you start outsourcing, you have to decide exactly what tasks or projects you want to outsource and why. Make sure you know exactly what the freelance worker or company will provide and what type of budget you are working with. This is the type of information you will need to give the third party, so it is good to be completely clear on the goal before you start.

Find the right company or freelancer. Do a lot of research on possible companies or freelance workers that can provide the service you are seeking. Make sure you know a bit about the candidates and check reviews if they have any. If you decide on a freelancer, using Indeed’s job boards can be incredibly helpful in finding the best match for your business.

Create a detailed job description. Whether you are hiring a company or an individual, make sure you can give a precise description of what is needed. This will make negotiations and contracts a lot easier to build as there will be a clear statement of the exact output you need.

Create a contract. Once you have decided on who to hire and the exact scope of the job, make sure you have a good contract. Ensure the contract spells out things like deadlines and what is expected of the third party. Also, if you deal with sensitive material, think about creating a non-disclosure agreement. That way, you can be sure that your information will not be compromised.

Repeat when needed. Once you have succeeded with an outsourced task or project, you can now repeat this process for other jobs that could benefit from being outsourced.

Outsourcing is a cost-effective way to streamline operations that any company can use to increase profits while focusing on what they do best. By using the steps above, you will be able to have success at outsourcing and establish working relationships with other organizations.

Related article: How to Grow Your Business

What is Outsourcing and How to Do It?